Debt & Frugality

As Didi says in the novel (Findependence Day), “There’s no point climbing the Tower of Wealth when you’re still mired in the basement of debt.” If you owe credit-card debt still charging an usurous 20% per annum, forget about building wealth: focus on eliminating that debt. And once done, focus on paying off your mortgage. As Theo says in the novel, “The foundation of financial independence is a paid-for house.”

Why and how Financial Independence is achievable

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By Jade Anderson

Special to the Financial Independence Hub

Financial independence can mean different things to different people, but the widespread definition is to be financially secure and on the right track to a safe retirement.

Sometimes people will still need to work in order to maintain their financial independence (aka “Findependence”), but the main idea is that you are free from any debt or outside help from financial institutions. This may seem like something that is unachievable for anyone outside of retirement age, who isn’t well established; however, because of the different types of financial independence, it may not be so difficult after all. Adjusting your spending habits, creating a budget for your self and several other things can lead you towards Findependence, if you know the right things you need to consider.

Reduce unnecessary expenses

Setting up a budget for the long term is extremely important if you’re wanting to become financially independent. If you can cut down on any unnecessary expenses (such as extra food, clothing, and entertainment) in your weekly spending, then you’ll find it will be a lot easier to save. If you are not used to saving money, starting small is important because it will help you establish a pattern of saving properly, and it will be easier for you when you move up to saving more of your average income.

Plan your savings and spending

Planning not only your savings, but also your spending is crucial for ensuring your financial independence. If you have a few debts, and you can make plans to pay off certain amounts by certain dates, you’ll find that the overall debt is easier to pay off, than if you paid it off in a lump sum. Using one of the financial calculators like those on Brighter Finance can help you calculate your budget and repayment periods for your loans, so you can keep track of your money more easily.

Continue Reading…

Vanguard Canada unveils low-cost actively managed mutual funds

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Vanguard Canada’s Atul Tiwari

On the heels of its three asset allocation ETFs that shook up Canada’s investment industry in February, Vanguard Investments Canada Inc. today announced it will be providing four new low-cost actively managed mutual funds to the Canadian market.

The four new mutual funds are its first actively managed products for the domestic market: until now, it has been providing 36 exchange-traded funds (ETFs), with more than C$16 billion in assets. Vanguard says Canadians hold more than C $28 billion in Vanguard investments if you include both its Canadian products and its funds trading on US stock exchanges.

All four of the new active mutual funds are globally diversified: Vanguard says its management fees are about half that of the mutual fund industry average in Canada. (According to the Investment Funds Institute of Canada here, the average total cost of ownership of mutual funds for clients using advice-based distribution channels in Canada at the end of 2016 was 1.96% when taxes are excluded.)

IFIC has said these costs continue to fall and there’s little doubt Vanguard’s entry will accelerate the trend, and not a moment too soon, given last Thursday’s disappointing proposals from the Canadian Securities Administrators. (See the Hub’s roundup here or my Motley Fool Canada blog here).

In a press release distributed at 8 am Monday, Vanguard said the four new funds “feature global investment strategies from some of Vanguard’s longest-tenured sub-advisors” and complement its broad-based lineup of ETFs.

Vanguard Canada managing director Atul Tiwari (pictured) said “Vanguard has a deep 40-year history of active management expertise and we are excited to extend that to mutual fund investors in Canada, at a low cost … These mutual funds reflect our philosophy as an organization with a disciplined long-term approach and world-class investment managers that have worked with Vanguard for decades.”

Despite the fact The Vanguard Group Inc. pioneered index funds and low-cost passively managed investing (with more than US$5 trillion under management), it is also one of the world’s largest active managers, with US$1.2 trillion in global actively managed assets. The key contributing factors to successful active management are low costs, talent and patience, said Tim Huver, Vanguard Canada’s head of product.

Pricing varies with investment performance

Vanguard says it will use a unique pricing structure in the Canadian marketplace that aligns the interests of the sub-advisors with the funds’ investors. The maximum management fee for each mutual fund will be 0.50% and the management fee will vary up or down, up to that maximum amount, based on the investment performance of each fund.

 

Mutual Fund Maximum Management Fee First Year Management Fee
Vanguard Global Balanced Fund

 

 0.50% 0.38%
Vanguard Global Dividend Fund

 

 0.50% 0.34%
Vanguard Windsor U.S. Value Fund 0.50% 0.35%
Vanguard International Growth Fund 0.50% 0.40%

 

The first year management fee shown above is effective from June 25, 2018 to June 30, 2019. The funds will be available to financial advisors through Series F units and institutional investors through Series I units.

Canadian investors currently hold $1.5 trillion in mutual funds, according to Tiwari. “Vanguard has a long track record of lowering investment costs in the areas in which we operate, so we see providing greater choice and lower costs to a broader group of investors as very positive.”

More on the four actively managed global mutual funds Continue Reading…

Overhaul of mutual fund fees not as sweeping as some would like

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Deferred Sales Charges (DSC) on mutual funds are going to be eliminated in Canada but recommendations released today by securities regulators did not go so far as to implement an outright ban of trailer commissions (aka trailer fees, also referred to as embedded compensation.)

The Canadian Securities Administrators (CSA) also released proposals regarding rules about what advice or products are in the “best interest” of financial consumers.

 

You can find a full summary in this article that appeared today in the Globe & Mail. (The full link may only be available to G&M subscribers, depending on how many free views readers have previously accessed). Rob Carrick also has a column on the topic titled It just became clear we’ll never see an investment industry where clients must come first. Well, we’ll see. Over at the Financial Post, Barbara Schecter reports OSC drops push for adviser standard.

Big win for industry

For more of an industry perspective, there is a full report here at Advisor.ca. And the industry’s newspaper, Investment Executive, headlined its coverage as “a big win for the industry.”

John De Goey

One of the sources cited in both G&M articles is John De Goey, an investment adviser and author, who also sent this email to the Hub expressing his disappointment in the decisions:

“This is shameful on the part of the CSA.  It has been almost 15 years since Julia Dublin’s Fair Dealing Model drew attention to the concern of bias caused by embedded commissions.”  He also offered these four observations:

  • The primary concern is advisor bias as caused by embedded compensation, and there’s nothing here to address that
  • Does not allow for “product meritocracy”
  • Does not address how the trailing commission on equities is double the trailing commission on income (which creates obvious, massive, self-evident advisor bias)
  • Does nothing to address the discrepancy between ETFs and mutual funds.  Advisor’s preferred business model should never drive product recommendations

 

Vanguard says industry will organically evolve away from embedded compensation

Vanguard Canada’s Atul Tiwari

However, Vanguard Investments Canada Inc. managing director Atul Tiwari said Vanguard is “encouraged by some of the proposals from the CSA. Although there will not be a ban on embedded commissions, we believe that the Canadian market, like other regions around the world, will organically evolve away from it. The CSA has made clear that suitability determinations will need to be in the best interests of clients. This will likely accelerate the move that we are already seeing in advisors going from commission-based to fee-based models. We support that trend as providing superior fee transparency and enhancing the use of low cost products to give clients better long term returns. Vanguard will continue to champion the interests of Canadian investors with more low-cost and high-quality product options.”

And finally, my take on this at the Motley Fool

(Added on Friday afternoon): You can find my own take on this development in my monthly blog at Motley Fool Canada. Click on the highlighted headline here: New mutual fund advice guidelines underwhelm advocates for Consumer-Investors.

 

How do Canadians feel about the new Real Estate regulations?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

The anniversary of the implementation of the Ontario Fair Housing Plan has come and gone, and the playing field is just starting to even in the province’s housing market. Designed to cool demand and price growth in the Greater Golden Horseshoe, the 16-part package of housing regulations has effectively done just that, with sales down double-digit percentages throughout the region, and prices softening for the most expensive housing types.

Housing analysts argue that this result is mainly due to psychological factors, rather than the new regulations – which include a foreign buyer’s tax, and overarching rent controls – themselves.

But what do Ontarians really think about the new regulations? To find out, Zoocasa conducted a survey of 1,400 respondents on their sentiments around the highlights of the plan, and whether they support the government’s intervention in the free housing market.

Following BC’s footsteps

If Ontario’s attempt to tax foreign purchasers of real estate seems familiar, that’s because it closely resembles what occurred in British Columbia; the province initially implemented a 15-per-cent levy on foreign buyers within the Metro Vancouver area in August 2016, before upping the tax to a full 20 per cent, and extending the affected geographical area, in February of this year.

While Ontario’s version, called the Non-Resident Speculation Tax (NRST) still taxes just 15 per cent of a home’s purchase price, it will apply to anyone buying a home within the GGH – including homes for sale in Hamilton, or condos for sale in Mississauga, who is not a Canadian citizen or permanent resident (those who obtain such status, or who are enrolled in a minimum two-year full-time post-secondary program within a year of their home purchase are eligible for a full rebate on the NRST).

At the time of its implementation, former Ontario premier Kathleen Wynne was adamant that the tax was not intended to discourage newcomers to Canada from settling in Ontario.

“The Non-Resident Speculation Tax has nothing to do with new Canadians or people who want to make Ontario their home,” she stated to a media scrum on April 20, 2017. “This is targeting people who are not looking to raise a family, who are just looking for quick profit or a place to park their money.”

The measure appears to have resonated well with all Canadians; according to survey results, 69 per cent of respondents from all provinces indicated they support the tax, while 61 per cent felt foreign ownership directly impacts prices in the local housing market.

Perhaps not surprisingly, respondents from provinces with the most competitive real estate marketplaces were most likely to support the tax: 77 per cent of British Columbians and 70 per cent of Ontarians indicated they were pro-tax.

Support extends beyond affected Housing markets

However, even respondents from provinces where foreign investment and homeownership is not considered a stressor on the market, indicated support for the tax; 65 per cent of Albertans indicated support, even though only 40 per cent feel out-of-country buyers impact housing prices in their region. Continue Reading…

How in sync are global Central Banks?

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By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

Without much fanfare, the U.S. Federal Reserve (Fed) provided its policy guidance late in May. Although no rate hike was implemented [it raised its overnight lending rate by 0.25% at 2 pm today, June 13, at 2 pm: Editor]  the money and bond markets fully expect the U.S. central bank to continue on its tightening path for the remainder of 2018, if not beyond. While the lion’s share of the focus has been Fed-centric on this front, it seems like a good exercise to check in on what the expectations are for the developed world’s other key monetary policy makers.

Heading into 2018, optimism for ongoing global growth seemed to be the norm. Indeed, along with the outlook for continued global growth, discussions were arising on whether central banks would soon turn their attention to any potential increase in inflation. While we still have almost seven months to go in this calendar year, recent data appears to be suggesting a plateauing of sorts on the economic front.

One economic indicator that is widely watched for help discerning economic trends on a global basis are the various Purchasing Managers’ Indexes (PMI) on a country or regional basis. While the levels being posted in the developed world still point toward further expansion, they don’t necessarily indicate a pick-up in growth prospects on the immediate horizon. In fact, the readings for April on an aggregate basis were relatively flat, and in some cases — such as the eurozone, the UK and Canada — have actually slipped a bit from their recent peaks.

So, what should investors expect in near-term global central bank policy? As illustrated in the table above, expectations for the upcoming policy meetings certainly differ quite a bit. The overarching outlook is for the Fed to raise rates at its convocation on June 13, with the Fed Funds Futures implied probability being 100%, as of this writing. The remaining four developed world central banks — the European Central Bank (ECB), the Bank of England (BOE), the Bank of Canada (BOC) and the Bank of Japan (BOJ)  — all fall in the “no rate hike” camp. Continue Reading…